New data on the strength of online advertising, and some musings on the challenges ahead

The UK online advertising market broke through £2bn in 2006 according to new data out from the Internet Advertising Bureau. The growth rate was 41% and search dominated with 58% of the £2bn.

I’ve said it before and I’m saying it again because it is hard to overstate the joys of working in a market that combines this sort of scale AND growth. Opportunities like this don’t come round very often.

The growth is set to continue – the share of advertising spend on the web is still far less than the share of media that is consumed on the web. The UK is world leading with 12.4% of total ad budgets spend online in H206 and at least 30% of media consumption is online. Over time ad spend will come to match media consumption, so there is still a lot of growth left.

But there will be some challenges ahead.

The biggest ad budgets are still in traditional television. The traditional TV model is interruption based advertising to promote brands. The advertiser has your total attention for thirty seconds – always assuming you don’t fast forward the ads or channel hop. Also important is the fact he chooses you – so brands you don’t know can reach you with products you don’t know you want.

Advertising on the internet has been totally different to this. Search is the most successful and largest part of the online mix – and in the search model ads find you when you want them on topics you are already thinking about. This is great at driving transactions, but not brand.

Banner ads are more about brand, but even they are measured mostly in terms of click through and haven’t succeeded in attracting the big brand advertisers in any volume. I think that is because it is unclear if they work – too many people are blind to banner ads.

So if we are to get the TV ad budgets on to the web something is going to have to change – at the moment there is no way to offer brand advertisers anything equivalent to the results they get from TV (or the results they think they get).

People are, of course, addressing this problem. The ideas people are working on will be familiar to many of you and include:

Brands entering into dialogue with consumers on social networks

Coupons for money off washing powder and other fast moving consumer goods

Pre-roll video ads

Embedding video in banner ads

Sophisticated ad targeting

These are all good, but none of them has really been proven out yet. For example, the most developed is probably brands building profiles on social networks and entering into dialogue with consumers – that has worked well for some, but it is unclear to me whether all brands will be able to do this successfully and how it will evolve over time.

Don’t get me wrong, I’m sure these ad dollars will come to the net – that is where the customers are, so there is no choice. My point here is really that there is more innovation ahead of us than behind us.